US Trade and Investment Curbs on China

With the launch of additional tariffs yesterday on imports of solar panels from China, we are on the cusp of a significant escalation of trade and investment frictions between the US and China. While China is likely to only respond verbally to this initial well flagged move, as other trade and investment barriers are raised by the US, a more direct response will become inevitable.

Why are more import tariff and investment restrictions from Washington likely?

First: The administration has published three major documents in recent weeks, all of which come to the same conclusion – that the US must with urgency reset its relationship with China to a less accommodating, more resistive stance. These reports on National Security Strategy, on China’s WTO Compliance and National Defence Strategy come from different branches of the government and don’t reflect the views of any one individual. This is broad based sentiment.

Second: On top of that congress is pushing (rare) bipartisan legislation to give the process by which the US governments reviews foreign investment in to the US a much wider scope with additional explicit rationale for turning down investments (including for example if a US company could not make a similar investment in the country from which the company is making the bid for a US asset, preventing a foreign company accessing personal data on US citizens). This Foreign Investment Risk Review Modernization Act will give CFIUS (the Committee on Foreign Investment in the United States) these new powers. But CFIUS is not waiting for the new law. It is has already required a Chinese company to divest the part of an acquisition that gave the acquirer access to consumer data.

Third: The President himself has flagged several times now a potential “fine” on China as a penalty for forced transfer of technology from the US to China. Numbers of hundreds of billions of dollars are being thrown around in Washington.

Multiple business and political delegations have travelled from the US to Beijing in the last 2 months to communicate that this time, multiple parts of the US government are aligned, are serious and minded to take significant actions.